Constitutionality
7215- Penalties for
Failure to Deposit Withheld Taxes in Government Account:
Constitutionality
[65-1
USTC ¶9441]
United States of America
, Plaintiff v. Oscar J. Plotkin, Defendant
U.
S. District Court, East. Dist. Wis, No. 64-CR-30, 239 FSupp 129, 3/22/65
[1954 Code Secs. 7215 and 7512]
Failure to deposit withheld taxes: Reasonable cause:
Constitutionality: Burden of proof.--A motion for acquittal of
charges of failure to deposit withheld taxes was denied after the
government proved beyond a reasonable doubt that a taxpayer failed to
deposit withheld taxes in any bank and that this failure was not
due to circumstances beyond the taxpayer's control. Code Secs. 7512 and
7215 did not deny the taxpayer due process of law.
James
B. Brennan, United State Attorney, William J. Mulligan, William M.
Coffey, Assistant United States Attorneys, 362 Federal Bldg., Milwaukee,
Wis., for plaintiff. George D. Crowley, 135 S. LaSalle St., Chicago,
Ill., Martin J. Price, 536 W. Wisconsin Ave., Milwaukee, Wis., for
defendant.
Decision
GRUBB,
District Judge:
The
defendant, Oscar J. Plotkin, doing business as Modern Fixture Company,
is charged in an indictment which alleges fifteen violations of 26 U. S.
C.A. §7215. That section makes it a misdemeanor to fail to comply with
the requirement of 26
U. S.
C. A. §7512(b). The requirements of §7512(b) are applicable only under
the conditions set forth in 26 U. S. C. A. §7512(a) which provides that
whenever any person who is required to collect, account for, and pay
over any tax imposed by subtitle C or by chapter 33 (of Title 26), fails
to do so, and has received a special notice delivered in hand, then such
person must comply with §7512(b). The provisions of §7512(b) require
that such person shall collect all taxes imposed by subtitle C or
chapter 33 which become collectible after delivery of the special
notice, and shall deposit the taxes collected in a separate bank account
no later than the second banking day after the taxes were collected.
At
the conclusion of the testimony in the court trial of this case, the
defendant moved for a judgment of acquittal. Before discussing the
grounds for this motion, it is necessary to summarize the facts as
developed by the evidence.
[Facts]
Oscar
J. Plotkin began doing business as Modern Fixture Company in March 1959.
He filed employer's quarterly federal tax returns for each quarter
during the period beginning with the calendar quarter ending
June 30, 19
59, and terminating with the calendar quarter ending
September 30, 19
60. In November 1960, he began to file monthly returns and continued to
do so for the period relevant to this case. On each of these returns Mr.
Plotkin stated a liability for federal income taxes withheld from wages
and a liability for Federal Insurance Contributions Act taxes. No
remittance was made by or on behalf of defendant with the return filed
for the second calendar quarter of 1959. The liability for that quarter
was not paid in full until September 1960. No payments were made for the
third calendar quarter of 1959 or for the third calendar quarter of
1960.
On
December 8, 19
59, the Internal Revenue Service sent Mr. Plotkin a letter which stated
that he was not complying with the requirements for paying over social
security and income taxes withheld from his employees' wages. The letter
stated that the provisions of §7512 of the Internal Revenue Code would
be invoked if he persisted in his failure to comply. The basic
requirements of §7512 were set forth in this letter, together with an
indication of the possible penalties for failure to comply with those
requirements.
On
November 23, 19
60, a notice to make special deposits of taxes under §7512(b) was
delivered in hand to Mr. Plotkin.
On
December 2, 19
60, Mr. Plotkin opened an account at the Bank of Commerce in
Milwaukee
. This account was denominated "Oscar J. Plotkin d/b/a Modern
Fixture Company, Trustee, Special Fund in Trust for
U. S.
under Sec. 7512 I. R. C." Certain deposits and withdrawals were
made on this account in December 1960 and January and February 1961.
The
indictment charges that deposits were not made in a special account on
the second banking day after the taxes were collectible for weekly pay
periods from
March 21, 19
61 until
June 27, 19
61.
The
ledger sheets for the special account established by Plotkin at the Bank
of Commerce indicate that no deposits or withdrawals were made on the
account from March 1961 through June 1961, inclusive. The balance in the
account for that period was $14.78.
A
certificate of assessments and payments of the Internal Revenue Service
indicates that monthly returns for the months of March 1961 through June
1961 were filed by Oscar J. Plotkin but that payment was not made until
May 15, 19
62, on the liability reflected on those returns.
On
September 15, 19
61, a special agent of the Intelligence Division of the Internal Revenue
Service visited Mr. Plotkin at his office, and he consented to allow the
agent to examine his payroll records. In the course of this examination
the agent prepared a transcript from the records showing, for each pay
period mentioned in the indictment, the gross amount of employees' wages
and the amounts which were deducted therefrom for social security,
withholding tax, and other deductions.
In
the course of their investigation of this case, the Internal Revenue
agents talked with Mr. Plotkin, and he informed them that he understood
the requirements of the special notice delivered to him; that he had
opened the separate bank account at the Bank of Commerce; and that he
did not make the deposits required because he was fighting to keep his
business going.
[Defenses]
The
motion for a judgment of acquittal is based first on the proposition
that the government has failed to prove beyond a reasonable doubt that
the defendant failed to make the required deposits in any bank
within the statutory definition. The defendant argues that the
government proof is confined to the account at the Bank of Commerce in
Milwaukee
.
Mrs.
Clementine Steffes, the defendant's bookkeeper, testified that Mr.
Plotkin told her to open the special account at the Bank of Commerce,
the bank nearest to Plotkin's business and the bank with which he had
done other business.
When
revenue officer Martin interviewed the defendant in August 1961, the
defendant told him that the separate account was at the Bank of Commerce
and that he had not been making regular deposits in it because he did
not have the money.
In
September 1961, special agent Dettwiler talked with the defendant, and
Mr. Plotkin admitted that he had not complied with the requirements of
the special notice; that he had been fighting to keep his business
going; and that he did not have the funds to deposit in the bank
account.
The
government has sustained its burden of proof on this aspect of the case.
The
second reason urged as a ground for the judgment of acquittal is that
the government has failed to prove beyond a reasonable doubt that the
failure of the defendant to meet the requirements of §7512(b) was not
due to circumstances beyond his control within the meaning of that
exception to §7215. The relevant provisions of §7215 read:
"(b)
Exceptions.--This section shall not apply--
*
* *
"(2)
to any person, if such person shows that the failure to comply with the
provisions of section 7512(b) was due to circumstances beyond his
control.
"For
purposes of paragraph (2), a lack of funds existing immediately after
the payment of wages (whether or not created by the payment of such
wages) shall not be considered to be circumstances beyond the control of
a person."
Mr.
Plotkin claims that he was fighting to keep his business going. Mrs.
Steffes, his bookkeeper, testified that it was necessary for him to
borrow money repeatedly in order to pay salaries, to pay rent, to pay
for electricity, to pay for general expenses, and to pay the Internal
Revenue Service. Mr. Plotkin told the two Internal Revenue
representatives of his difficulties. If the failure to make the required
deposits in the special account was due to a lack of funds, it was
immediately after the payment of wages within the meaning of the
above-quoted provisions.
The
legislative history of §§ 7512 and 7215 demonstrates the meaning of
the provision under consideration. That history states that a lack of
funds, after payment of wages (but not immediately after) and within the
period before which the person was required to deposit the funds, which
was due to theft, embezzlement, or destruction of the business by fire,
flood, or other casualty would be a lack of funds due to circumstances
beyond a person's control. A lack of funds due to the payment of
creditors would not be considered a circumstance beyond a person's
control. 1958 U. S. Code Cong. and Adm. News, p. 2192.
The
undisputed evidence in this case is that the defendant had to borrow
money on many occasions to meet his liabilities. A lack of funds
resulting from taking care of these liabilities is not due to
circumstances beyond the defendant's control within the meaning of the
statute involved. The government has sustained its burden of proof in
regard to this aspect of the case.
[Denial
of Due Process]
The
motion for judgment of acquittal is also based on the argument that the
statutory provisions upon which this prosecution is founded have denied
the defendant due process of law in two respects: Section 7512 provides
for an administrative determination without notice and hearing afforded
to the person affected, and §7215 subjects a person to criminal
penalties for failure to comply with an administrative determination
without providing an opportunity for administrative or judicial review
of that determination.
The
cases cited by the defendant in support of these propositions are
sufficiently answered by Phillips v. Commissioner [2 USTC ¶743],
283
U. S.
589 (1931), at page 595:
"The
right of the
United States
to collect its internal revenue by summary administrative proceedings
has long been settled. Where, as here, adequate opportunity is afforded
for a later judicial determination of the legal rights, summary
proceedings to secure prompt performance of pecuniary obligations to the
government have been consistently sustained. * * *
There
is an adequate opportunity for a judicial determination in the present
case. The taxpayer could have paid the taxes under protest and then
commenced a suit for a refund.
The
defendant contends that the opportunity for a judicial determination
does not exist in the present case because the defendant would not have
standing to sue since the taxes required to be withheld were the
obligations of his employees. But, as the government points out, the
defendant would have standing to sue by virtue of the interest he has
resulting from his contributions to the social security taxes. An
employer may recover social security taxes wrongfully collected over
protest. Radio City Music Hall Corp. v.
United States
, 50 F. Supp. 329 (S. D. N. Y. 1942), aff'd 135 F. 2d 715 (2d Cir.
1943). A recent example of this procedure is Capital Trawlers, Inc.
v. United States, 216 F. Supp. 440 (D. Me. 1963), aff'd 324 F. 2d
506 (1st Cir. 1963).
On
all the employer's tax returns filed by Oscar J. Plotkin d/b/a Modern
Fixture Company, from the second calendar quarter of 1959 through June
1961, the defendant stated a tax liability for withholding taxes. In
conversations with representatives of the Internal Revenue Service, he
stated that he had not made payments because he was short of funds.
Almost a year before notice was delivered in hand to the defendant under
§7512(a), he was advised that the provisions of §7512(b) would be
employed if he did not comply with the regular withholding requirements.
At no time did the defendant attempt to avail himself of a judicial
determination by payment under protest, claim, and suit for refund.
It
should be noted that the procedure in this case is similar to that in
other criminal prosecutions for failure to comply with a duty imposed by
statute. If the person charged contends he is not under the duty, a
judicial review of the administrative determination that he is under the
duty is not available until the trial of the criminal case when the
issue may be raised as a defense. One example of this would be a
prosecution for failure to secure a wagering occupation tax. The
administrative determination that a particular activity is wagering is
not open to judicial review until the trial of the case when the issue
is raisable as a defense to the charge. The same is true in connection
with many, if not most of the offenses proscribed by statute.
The
statutes upon which this prosecution is based do not deprive the
defendant of due process of law.
The
motion for judgment of acquittal is hereby denied.
[72-2
USTC ¶9546]
United States of America
, Plaintiff-Appellee v.
Norwood
J. Patterson, Defendant-Appellant
United States of America
, Plaintiff-Appellee v.
Norwood
J. Patterson, Defendant-Appellant
(CA-9),
U. S. Court of Appeals, 9th Circuit, Nos. 72-1191, 72-1565, 465 F2d 360,
7/3/72
[Code Secs. 7215 and 7512(b)]
Offenses: Collected taxes: Separate accounting for withheld taxes:
Constitutionality.--Taxpayer's conviction on sixteen counts of
collecting taxes from employees and failing to deposit them in trust
within two banking days of the dates those sums were collected was
affirmed. Due process does not require that the taxpayer be granted a
hearing before being placed in a trust-account category. It is
sufficient if a hearing is had prior to the final order which deprives a
person of his liberty. Further, the law under which he was prosecuted
was not unconstitutional because it provided for "imprisonment for
debt."
James
L. Browning, Jr., United States Attorney, Gary K. Shelton, John M.
Youngquist, Assistant United States Attorneys,
San Francisco
,
Calif.
, for plaintiff-appellee. Edward L. Cragen,
San Francisco
,
Calif.
, for defendant-appellant.
Before
BARNES and GOODWIN, Circuit Judges, and MCGOVERN, District Judge. *
GOODWIN,
judge:
Norwood
J. Patterson was convicted by a jury on nine counts of violating Section
7512(b) of the Internal Revenue Code; i.e., of collecting taxes
from the employees of Sierra Broadcasting, Inc., and failing to deposit
them in trust within two banking days of the dates those sums were
collected.
In
a consolidated action, Patterson was also convicted of seven counts
involving the collection of taxes from employees of Radio Station KBIF,
Inc. He appeals both judgments.
Patterson
and his wife owned all the stock of Sierra, and of Pattco, Inc., which
owns KBIF. Patterson was president of both Sierra and KBIF.
The
record reveals an extraordinary pattern of delinquencies during all or
parts of the years 1963 through 1968, inclusive. Patterson was
interviewed, warned, and repeatedly urged to comply with the withholding
requirements. He was undercapitalized, and apparently operated his
various corporate enterprises by standing off creditors, including the
government.
In
due course, Patterson was formally served with IRS forms 2481 which
notified Patterson, for each of his corporations, that he must comply
with four requirements:
(1)
Collect incoem tax withheld from employees and collect the employee
Social Security contribution;
(2)
Establish a trust account for the government in a bank;
(3)
Deposit the taxes withheld and collected into that account; and
(4)
Keep those funds in the bank until paid over to the government.
Patterson
ignored these notices, and was prosecuted. He defended on the ground
that he had been denied due process of law by being placed in a
trust-account category without a hearing, and that the law under which
he was prosecuted was unconstitutional because, among other things, it
provided for "imprisonment for debt."
On
appeal, he reasserts his constitutional contentions, and argues also
that the evidence was insufficient to convict.
The
constitutional arguments are answered by United States v. Plotkin
[65-1 USTC ¶9441], 239 F. Supp. 129 (E. D. Wis. 1965). Due process does
not demand hearings during every stage of administrative proceedings
which lead to a confrontation with the government. It is sufficient if a
hearing is had prior to the final order which deprives the person of his
liberty. Opp Cotton Mills v. Administrator, 312
U. S.
126, 152-153 (1941).
The
argument that he is being imprisoned for debt is specious. Patterson's
misdemeanor was using as his own the tax money he was required by law to
withhold from his workmen's wages and to pay over to the government.
Congress has adequate power to punish such conduct.
The
argument that the evidence was insufficient to support conviction does
not deserve discussion.
Affirmed.
*
Judge Kerner heard oral argument but did not participate in the adoption
of this opinion.
1
A petition filed by the appellant's wife, Dorothy Plunkett, for a
redetermination of deficiencies and additions to tax was also
consolidated for the trial. The results of that redetermination are not
involved in the appeal before us.
2
Subsection (b) of 26
U. S.
C. §6653, "Failure to pay tax," provides in part:
"(b)
Fraud.
If
any part of any underpayment (as defined in subsection (c)) of tax
required to be shown on a return is due to fraud, there shall be added
to the tax an amount equal to 50 percent of the underpayment. In the
case of income taxes . . ., this amount shall be in lieu of any amount
determined under subsection (a) . . .."
3
Judge Quealy's memorandum findings of fact and opinion of
Sept. 29, 1970
, are unofficially reported at
29 CCH Tax Ct.
Memo. 1237 [CCH Dec. 30,349(M)].
*
The Honorable Walter T. McGovern, United States District Judge for the
Western District of Washington, sitting by designation.
[76-2
USTC ¶9577]
United States of America
, Appellee v. Gilbert H. Paulton, Appellant
(CA-8),
U. S. Court of Appeals, 8th Circuit, No. 75-1916, 540 F2d 886,
7/30/76
, Affirming unreported District Court decision
[Code Secs. 7215 and 7512]
Withholding of tax on wages: Crimes: Offenses with respect to
collected taxes: Failure to deposit withheld taxes in government
account.--The Court of Appeals upheld the taxpayer's conviction for
nine counts of failure to deposit withholding taxes collected from his
employees into a special trust account for the government. The
taxpayer's claim that Code Sec. 7512 is unconstitutional in that it does
not provide for a prior administrative hearing before an employer is
required to comply with Code Sec. 7512(b) was found to be without merit.
Similarly, the taxpayer's contention that the provisions of Code Sec.
7215(b) violated his Fifth Amendment privilege against
self-incrimination by placing upon the taxpayer the burden of proving
his own innocence was also rejected by the court. Other claims by the
taxpayer that the lower court erred in not granting a continuance, in
allowing agents to testify as to admissions made by the taxpayer without
benefit of his Miranda warnings, and in giving improper
instructions to the jury were also found to be without merit. BACK
REFERENCES: 76FED ¶5723B.10, 76FED ¶5723B.11 and 76FED ¶5921I.10.
William
F. Clayton, United States Attorney, Robert D. Hiaring, Assistant United
States Attorney, Sioux Falls, S. D., Michael Hickey, for appellee.
Gilbert H. Paulton, pro se., 1304 South Main St., Sioux Falls, S. D.,
William Fuller, 310 S.
First Ave.
,
Sioux Falls
, S. D. for appellant.
Before
VOGEL, Senior Circuit Judge, and HEANEY and HENLEY, Circuit Judges.
HENLEY,
Circuit Judge:
Gilbert
H. Paulton, hereinafter called defendant, appeals from a judgment of the
United States District Court for the District of South Dakota 1 entered
after a jury had found the defendant guilty of nine violations of 26 U.
S. C. §7215(a). The nine-count information charged that with respect to
pay periods extending from about
December 5, 1974
through about
March 26, 1975
the defendant, an employer of labor, failed to pay over federal
withholding taxes collected from his employees into a special trust
account in a bank as required by 26 U. S. C. §7512(b) after being
formally required by notice to do so as provided by §7512(a). 2
After
a motion for a continuance had been denied, trial before the jury began
on
September 24, 1975
and was concluded on September 26. Throughout the trial the defendant
served as his attorney, but had the assistance of a legal intern
appointed by the district court the day before the trial.
After
having been found guilty, defendant remained at liberty until
December 2, 1975
when he appeared for sentence. The district court imposed cumulative
fines on the defendant aggregating $900.00 ($100.00 on each count); and
also sentenced the defendant to confinement in a jail type institution
for six months on each count of the information, but with the sentences
to run concurrently.
Execution
of the jail sentence was suspended and defendant was put on probation
under certain conditions. Two of those conditions had to be met by 10:30
a.m. on the following day, December 3. The defendant did not meet at
least one of them and was immediately confined by the marshal pursuant
to the district court's oral directive given during the sentencing
hearing. However, defendant immediately filed a notice of appeal, and on
December 4 he was enlarged on bail pending disposition of the appeal.
After
the appeal had been docketed, this court on its own motion appointed
counsel to represent the defendant. Counsel has acted with skill and
with diligence. While professing satisfaction with his appointed
counsel, defendant sought and obtained leave to make an argument before
us, and did so. 3
For
reversal, the defendant advances a number of contentions that we will
discuss but not in the order in which they appear in defendant's brief.
As
is well known, employers are required by pertinent provisions of the
Internal Revenue Code to withhold social security and federal income
taxes from the wages of employees, to make quarterly returns of their
withholdings on IRS Form 941, and to pay over to the government the
amounts of wages withheld. Under the provisions of 26 U. S. C. §7501
wages withheld from employees are deemed to be held in trust for the
benefit of the United States, and the employees in question are given
credit for the amounts of the withholdings regardless of whether their
employers pay the money over to the government as required. The
statutory and regulatory scheme and the obligations of employers
thereunder were recently discussed by this court in some detail in Hartman
v.
United States
, -- F. 2d -- (8th Cir. No. 75-1698, --, 1976). See also Kelly v.
Lethert [66-2 USTC ¶9509], 362 F. 2d 629 (8th Cir. 1966), and United
States v. Strebler [63-1 USTC ¶9278], 313 F. 2d 402 (8th Cir.
1963).
If
an employer is persistently delinquent with respect to his withholdings,
the Internal Revenue Service may invoke against him the rather stringent
provisions of 26
U. S.
C. §7512. When that section is invoked, the employer is notified by a
hand delivered notice that he must open a special trust account in a
bank for the benefit of the government, and must pay over into that
account all withholdings from wages within two banking days after the
withholdings are effected. After that notice has been served, the
employer is required by §7512(b) to open the account and make the
payments into it. In addition, he is required to file monthly returns
using Form 941M and to make monthly remittances to the government out of
the trust account.
Section
7215(a) makes it a misdemeanor for an employer to violate §7512(b).
However, §7215(b) makes certain exceptions to criminal liability under
the preceding subsection. Subsection (a) does not apply where a
defendant shows that there was reasonable doubt as to whether the taxes
were legally collectible or as to whether he was a person required to
collect them, or where the defendant shows that his failure to collect
and pay over was due to circumstances beyond his control. However, the
statute provides that a mere lack of funds immediately following a
payment of wages, whether brought about by the payment or not, is not
deemed to be a circumstance beyond the control of a defendant. See in
this connection United States v. Plotkin [65-1 USTC ¶9441], 239
F. Supp. 129, 131 (E. D. Wis. 1965).
We
turn now to the facts of the case which are largely undisputed.
During
1974 and 1975 defendant was engaged in
Sioux Falls
,
South Dakota
in the business of cleaning floors and upholstery. Although it is
inferable that his business was relatively small, he did have a number
of employees whom he paid by check approximately once every two weeks.
He withheld taxes from the wages of those employees but consistently
failed during the period with which we are concerned to file his
quarterly returns promptly, and he also failed to pay over his
withholdings. He apparently used them as a source of funds for his own
business purposes.
In
August, 1974 defendant was delinquent with respect to his withholdings
and was called upon by Internal Revenue Agent Robert Baily. Defendant
was given detailed information by Agent Baily with respect to
defendant's duty to file returns and make payments, and he was warned
that if he continued to be delinquent, he would be subjected to the
requirements of §7512(b).
The
defendant did not heed that warning. On
November 24, 1974
Agent Baily called on the defendant again and served on him personally
the notice called for by §7512(a). In late December Agent Baily called
on the defendant yet again and was advised that a special trust account
had been opened in an identified bank. As to his returns, defendant said
that he had mailed them to
Ogden
,
Utah
, rather than to
Aberdeen
,
South Dakota
. Investigation revealed that no special bank account had been opened,
and IRS records failed to reflect the filing of returns in either
Ogden
or
Aberdeen
.
With
affairs in this state, Agent Baily turned the file over to the
Intelligence Division of the IRS for investigation and possible criminal
prosecution. The case was assigned to Special Agent Charles Smith of the
Intelligence Division.
Smith
and Baily visited defendant at his place of business on the morning of
April 7, 1975
. The defendant was already acquainted with Baily. Smith identified
himself as a Special Agent of the Intelligence Division and advised the
defendant that the purpose of the visit was to investigate his
withholdings delinquencies, and that a criminal prosecution might result
or that a fraud penalty might be assessed. The defendant was advised of
certain of his constitutional rights. The agents then left after
advising the defendant that they would return and that in the meantime
he might consult an attorney if he so desired. At the defendant's
suggestion the agents returned about the middle of the afternoon.
The
defendant indicated that he was willing to answer questions. He stated
that he was responsible for the records of the business, and he admitted
that he had not opened a special bank account and had not mailed the
required Forms 941M. Although advised that he was not required to turn
over his records to the agents, the defendant did so, and the agents
made copies of pertinent documents.
Thereafter,
the prosecution of the defendant was instituted. Further facts will be
stated in the course of the discussion of defendant's several
contentions.
Defendant
contends, among other things, that 26
U. S.
C. §7512 is unconstitutional in that it does not provide for a prior
administrative hearing before an employer is required to comply with §7512(b).
The same contention was made and rejected in United States v.
Patterson [72-2 USTC ¶9546], 465 F. 2d 360 (9th Cir.), cert.
denied, 409
U. S.
1038 (1972), and in
United States
v. Plotkin, supra. We agree with the result reached in those
cases. Had defendant desired a judicial review of the administrative
action taken with respect to him, he could have opened the required
special account, made a deposit in it, and then sued for a refund. United
States v. Plotkin, supra, 239 F. Supp. at 131-32, cited with
approval in
United States
v. Patterson, supra, 465 F. 2d at 361.
We
next consider defendant's claim that the district court erred in
overruling a motion for a continuance filed on the first day of the
trial.
The
record reflects that after the information was filed, defendant employed
local counsel who appeared with him at arraignment at which time a plea
of not guilty was entered. Prior to
August 11, 1975
defendant's attorney was notified that the case was being set for trial
as a back-up case on September 8. On August 11 counsel advised the
Assistant United States Attorney who was handling the case that he had
been discharged as of that day, but that defendant was being notified of
the setting.
On
September 8 defendant appeared in court without counsel and filed a
written motion for a continuance. The district court seems not to have
acted formally on that motion, but the case was not tried on that day.
It was re-set tentatively for October 14, a date that was satisfactory
to the defendant. On September 17 defendant was notified formally that
the case would be tried if possible on October 14, and that if it could
not be reached on that date it would be tried on October 16.
However,
on September 22 Judge Nichol called the defendant on the telephone and
told him that it had become necessary to set the case for trial on
September 24. On September 23 Judge Nichol requested a third year law
student to assist the defendant in the course of the trial.
On
September 24 the defendant moved for a continuance of sixty days or in
the alternative for an order dismissing the information on account of
the alleged inability of the defendant to defend himself on such short
notice. In his motion he indicated that he had been preparing himself to
defend the case, and that he could probably have been ready on October
14. He did not indicate that he was trying to employ other counsel or
that he was indigent or that he wanted counsel appointed for him.
The
motion was denied, and the case went to trial. The transcript makes it
quite clear that throughout the trial Judge Nichol was zealous in the
protection of the rights of the defendant and gave him almost unlimited
leeway in attacking the government's case and presenting his own. The
defendant cross-examined the government's witnesses at length and
testified at length on his own behalf. He received substantial
assistance from the legal intern who has been mentioned. He objected to
evidence as to admissions made by him to the agents and to the admission
of copies of the documents that the agents had examined, and his
objections are properly before us for consideration presently.
The
question of whether the case should have been continued was one that
addressed itself to the discretion of the trial court, and we cannot say
that that discretion was abused or that the defendant sustained
prejudice by being required to go to trial on September 24 rather than
on some later date. We are not advised of any specific and concrete way
in which more time would have improved or altered the defendant's case.
His contentions would have been precisely the same, and in all
probability the result of the trial would have been precisely the same.
In
a prosecution under §7215(a) the government is not required to prove
willfulness or fraudulent intent, and laying to one side questions of
admissibility of evidence, the defendant from a factual standpoint had
no legal defense to the charges. His position was that the federal
withholding and income tax laws are unconstitutional, are morally wrong
and are not binding on the consciences of individuals, that he had
always intended to pay over the withholdings but had been prevented from
doing so by reason of his precarious financial situation, and that he
was being prosecuted unjustly and solely for the purpose of being held
up as an example to other employers. Assuming that the government's
evidence was legally admissible, the defendant's only real hope was to
receive an acquittal at the hands of a sympathetic jury. The district
court gave the defendant ample opportunity to expound his positions, but
the jury was not persuaded.
On
this issue, we find that this case is distinguishable from United
States v. White, 529 F. 2d 1390 (8th Cir. 1976).
We
next consider defendant's claim that the district court erred in
permitting the agents to testify with respect to defendant's admissions
and in admitting into evidence copies of the documents examined by the
agents. He says that his statements to and cooperation with the agents
on
April 7, 1975
were not made and given voluntarily and with an understanding of his
fifth amendment rights, and he says that he was not warned adequately as
to what those rights were.
The
area now under consideration was developed fully and carefully in the
course of the trial, and the district court held that the challenged
evidence was admissible. That ruling finds substantial support in the
evidence and is not clearly erroneous.
As
to the adequacy of the warnings, it should be pointed out that when the
defendant was interviewed on
April 7, 1975
he was not in custody and had not been charged with crime. In such
circumstances he was not entitled to the warnings required by Miranda
v. Arizona, 384
U. S.
436 (1966). See United States v. Pohlman [75-2 USTC ¶9677], 522
F. 2d 974, 978 (8th Cir. 1975), cert. denied, --
U. S.
--, 96 S. Ct. 776 (1976), and cases cited. Pursuant to prescribed
procedures of the IRS the agents in fact gave the defendant essentially
the warnings and advice that Miranda requires with respect to
persons who are being interviewed while in custody. The defendant
complains that he was not advised that if he was unable to employ an
attorney, the court would appoint one to represent him gratis. That
particular advice was simply not applicable to the defendant's
situation. When the defendant was interviewed, neither the district
judge nor the
United States
magistrate had come into the picture, and the IRS had no authority to
appoint an attorney for the defendant. In addition, in April, 1975 the
defendant was not indigent, and in fact, as has been seen, he employed
counsel after charges were filed against him.
Since
both interviews with the defendant on April 7 were conducted by the same
agents and in the same circumstances and since only a short period of
time elapsed between the two interviews, we see no merit in defendant's
claim that the agents should have repeated their warnings when they
returned for the second interview in the afternoon.
Another
contention made by the defendant is that the government failed to prove
beyond a reasonable doubt the dates upon which the wages mentioned in
the information were paid. We are satisfied that there was substantial
evidence from which the jury could find that wages were paid at least
constructively and that taxes were withheld from those wages on or about
the dates mentioned in the information and appearing on the checks that
were introduced in evidence. It is not material that the checks may not
have been delivered on the exact dates appearing thereon or that
particular employees may not have cashed their checks immediately after
receiving them. 26 CFR §31.3402(a)-1; United States v. McMullen
[75-1 USTC ¶9489], 516 F. 2d 917, 921 (7th Cir. 1975), cert. denied,
--
U. S.
--, -- S.
Ct.
-- (197 ).
Defendant
urges that the exceptions appearing in 26
U. S.
C. §7215(b) unconstitutionally place upon a defendant charged with
having violated §7215(a) the burden of proving his innocence and
infringe his privilege against self-incrimination.
We
see no substance in the claim of the defendant that §7215(b) violates
his fifth amendment privilege against self-incrimination. And we do not
agree with his argument that the "showing" requirement of the
subsection impermissibly shifts to one charged with a violation of §7215(a)
the burden of proving his innocence or creates any presumption of guilt.
When
Congres adopted what became §7215(a) it chose not to make willfulness
an essential element of the offense defined by the statute. However, it
adopted the exceptions appearing in §7215(b) not for the purpose of
burdening a defendant charged under the preceding subsection but rather
to protect from conviction a person whose failure to pay over taxes
might bring him within the literal terms of §7215(a) even though there
might have been reasonable doubt as to his legal liability to collect
and account for the taxes and even though his failure might have been
due to circumstances beyond his control other than a mere shortage of
funds immediately following a payment of wages. See United States v.
Gorden [74-1 USTC ¶9450], 495 F. 2d 308 (7th Cir.), cert.
denied, 419
U. S.
833 (1974).
No
one questions the proposition that it is a violation of due process of
law to require a defendant by statute or otherwise to assume the burden
of persuasion with respect to an essential element of the offense
charged. Thus, in Stump v. Bennett, 398 F. 2d 111 (8th Cir.), cert.
denied, 393 U. S. 1001 (1968), we held that a rule of Iowa law which
required a defendant in a criminal case to prove an alibi by a
preponderance of the evidence was unconstitutional; in so holding we
took the position that a claim of alibi is not an affirmative defense,
and that a defendant's presence at the scene of a crime which he is
alleged to have committed directly and personally is an essential
element of the offense charged, and must be proved by the prosecution
beyond a reasonable doubt.
It
does not necessarily follow, however, that it is unconstitutional to
shift to or place upon a defendant the burden of coming forward with
evidence in support of a particular contention. And it has been
frequently held that where a criminal statute contains exceptions which
take out of the scope of the statute conduct which otherwise would fall
within its terms, the prosecution is not required initially to negative
the applicability of the exceptions to the case at hand; in such a
situation a defendant must come forward with evidence at least
sufficient to create a real issue as to whether or not he is entitled to
the benefit of the exception which he invokes. See, e.g., United
States v. Chodor, 479 F. 2d 661 (1st Cir.), cert. denied, 414
U. S. 912 (1973); United States v. Holmes, 187 F. 2d 222 (7th
Cir.), cert. denied, 341 U. S. 948 (1951); United States v.
Krepper, 159 F. 2d 958 (3d Cir.), cert. denied, 330 U. S. 824
(1947); 7 Fifths Old Grand-Dad Whiskey, 158 F. 2d 34 (10th Cir.),
cert. denied, 330 U. S. 828 (1947); Williams v. United States,
138 F. 2d 81, 153 ALR 1213 (D. C. Cir. 1943). When the defendant has
done that, the general rule is that the burden is on the government
ultimately to establish beyond a reasonable doubt that the exception is
not applicable. Williams v. United States, supra; United States v.
Fabrizio, 193 F. Supp. 446, 448-50 (D. Del. 1961). The general rule
just stated appears to have been followed by the district court in United
States v. Plotkin, supra, which, like the instant case, was a
prosecution under §7215(a) for failure to pay over withholdings as
required by §7512(b).
Having
determined that §7512(b) is not unconstitutional, it becomes necessary
to consider whether the jury was correctly instructed with respect to
the statutory exceptions bearing in mind that we must consider the
instructions as a whole.
With
respect to the exceptions the district court instructed substantially in
the language of the statute. The jury was told:
You
are instructed that the defendant in this case would not be guilty of
the offense charged if he has shown that there was a reasonable
doubt as to whether the law required the collection of the tax or a
reasonable doubt as to who was the person or persons required by law to
collect such tax, or if he has shown that his failure to comply
was due to circumstances beyond his control; and I'm quoting from the
statute on that.
It
is not a defense, however, to show that there was a lack of funds with
which to make the deposits after the payment of wages, and such
situation should not be considered to be a circumstance beyond the
control of the defendant. (Emphasis added.)
At
the commencement of the charge the jury was told that it must consider
the instructions as a whole. The jury was also told that at the
beginning of the trial the defendant was presumed to be innocent, that
the information was not evidence of guilt, and that its filing created
no presumption of guilt. In a later part of the instructions the jury
was advised as to the contentions of the defendant including his claim
that he was without funds to pay the taxes. The jury was told that the
burden was on the government to prove the essential elements of the
offense by evidence beyond a reasonable doubt, and then it was told what
those elements were.
Immediately
thereafter, the district court returned to the questions of presumption
of innocence and burden of proof, and we deem it well to quote from the
instructions at some length:
.
. . So the presumption of innocence alone is sufficient to acquit a
defendant unless the jurors are satisfied beyond a reasonable doubt of
the defendant's guilt after a careful and impartial consideration of all
the evidence in the case.
It
is not required that the Government must prove guilt beyond all possible
doubt. The test is one of reasonable doubt. A reasonable doubt is a
doubt based upon reason and common sense--the kind of doubt that would
make a reasonable person hesitate to act.
The
jury will remember that a defendant is never to be convicted on mere
suspicion or conjecture.
The
burden is always upon the prosecution to prove guilt beyond a reasonable
doubt. This burden never shifts to a defendant, for the law never
imposes upon a defendant in a criminal case the burden or duty of
calling any witnesses or producing any evidence.
A
reasonable doubt exists whenever after careful and impartial
consideration of all the evidence in the case the jurors do not feel
convinced to a moral certainty that a defendant is guilty of the charge.
So, if the jury views the evidence in the case as reasonably permitting
either of two conclusions--one of innocence, the other of guilt--the
jury should of course adopt the conclusion of innocence.
Assuming
arguendo that the trial court's instruction with respect to the
statutory exceptions might have been worded so as to eliminate the
phrase "if he has shown," we think that when the instruction
is considered in connection with the other instructions that we have
mentioned, the instruction did not place an impermissible burden of
proof on the defendant and did not prejudice him.
Further,
we have considerable doubt that the defendant was actually entitled to
an instruction based on §7215(b). There was never any doubt, reasonable
or otherwise, that the wages of defendant's employees were subject to
withholding taxes or that the defendant was the person who was required
to collect and account for the taxes. And there was no evidence that
defendant's failure to pay over the withholdings was due to any
circumstance beyond his control other than the fact that he was short of
funds during the period in question, and that is not a circumstance to
be considered under §7215(b). What the jury was really concerned with
was the question of whether the defendant had violated §7215(a), not
whether he came within one of the exceptions, and the jury was clearly
told that the burden of proving the basic statutory violation by the
evidence and beyond a reasonable doubt was on the government.
Yet
another argument of the defendant is that if he was guilty of anything,
he was guilty of one continuing offense and not of nine separate
offenses. We reject that contention since we agree with the government
that the defendant owed a separate duty with respect to each of the nine
pay periods referred to in the information, and that each breach of duty
involved a separate offense. Cf. United States v. Keig [64-2 USTC
¶9563], 334 F. 2d 823 (7th Cir. 1964). The charges involved in this
case are quite different from those involved in United States v.
Universal C. I. T. Credit Corp., 344 U. S. 218 (1952), cited by
counsel for the defendant.
Finally,
the defendant attacks some of the terms and conditions under which he
was placed on probation with respect to his concurrent jail sentences. 4 He complains
principally that he was required to discharge within approximately
twenty-four hours his accrued withholding tax obligations amounting to
about $1500.00 and that in addition he was required to pay the $900.00
in fines in monthly installments of $150.00 each commencing in January,
1976. It was the defendant's inability to raise the $1500.00 within the
time limited that caused him to be incarcerated on
December 3, 1975
.
18
U. S. C. §3651 authorizes a district court in the exercise of its
discretion to suspend imposition or execution of a sentence and to place
a defendant on probation on such terms and conditions as the court deems
best. The terms and conditions of a probation may be modified from time
to time. And the statute specifically provides that probation may be
conditioned upon the payment of a fine or the making of restitution to a
person damaged by a defendant's criminal act.
It
is settled that probation is a matter of grace and not of right. And a
district court has wide, albeit not unbounded discretion in prescribing
the terms and conditions on which probation will be granted.
United States
v. Fultz, 482 F. 2d 1 (8th Cir. 1973);
United States
v. Alarik, 439 F. 2d 1349 (8th Cir. 1971).
The
transcript of the sentencing proceedings in this case reveals that the
trial judge was seriously concerned with how best to deal with the
defendant. The judge felt that the defendant was a well meaning and
generally law abiding citizen who had probably been carried away by his
political opinions about such matters as federal taxes. And the judge
evidently felt that it was necessary to take relatively strong measures
if the defendant was ever to get his business with the government in
proper order. Moreover, it should be remembered that the defendant had
been convicted in September, 1975 but was not sentenced until early
December; he had thus had a substantial period of time within which to
make arrangements to settle his withholding obligations to the
government.
We
cannot say that the terms of the probation prescribed by the district
court were unreasonable, arbitrary or capricious or that they amounted
to an abuse of discretion. Accordingly, we affirm the conviction and the
sentence imposed by the district court.
We
observe, however, that the time limitations imposed by the district
court have expired. If the defendant has not paid the arrearages in
withholdings that he owed when he was sentenced, he obviously cannot now
do so within the time prescribed by the district court. Nor is it
possible for him to pay his fines retroactively. More than six months
have elapsed since the defendant was sentenced, and conditions affecting
him may well have changed during the pendency of this appeal. Upon the
filing of our mandate it will be open to the district court to
reconsider the matter of defendant's sentence, and if the district court
decides to reinstate defendant's probation with respect to his jail
sentence it may do so on such terms and conditions as appear to be
reasonable and appropriate at the time.
Affirmed.
1
The Honorable Fred J. Nichol,
Chief
Judge
,
United States
District Court for the District of South Dakota.
2
A violation of §7215(a) is a misdemeanor, punishable by a fine of not
more than $5,000.00 or by imprisonment for not more than one year, or by
both such fine and imprisonment.
3
We note at this point that defendant makes no claim that he was denied
the assistance of counsel in connection with the proceedings in the
district court. He deliberately chose to represent himself after
discharging the attorney whom he had originally employed to represent
him.
4
The sentences themselves were well within statutory limits and were not
excessive.